04/05/2013 05:03 pm ET Updated Jun 05, 2013

Don't Leave Your Retirement to Luck, Part Two

My article last month focused on the role of luck in retirement planning in honor of St. Patrick's Day. I discussed how tempting - but also how destructive - it is to adopt an overly-optimistic view of what luck can do for your financial situation.

In this month's posting, I'll dig into three areas of your financial life - protecting your income, college funding and legacy planning - that often get left to blind luck.

#1: Leaving life and disability security to fate.
You can't just assume you will be lucky when it comes to the future financial well-being of your family and your fate. It's important to protect your livelihood now and for future years through life insurance. Many people know they should have more life insurance, but default to hoping the unthinkable won't happen to them. The generally accepted rule-of-thumb for coverage level is seven to ten times your annual salary. As a baseline, it's helpful to review your existing coverage every few years or when a "life event" occurs.

There are different types of insurance to consider as well. Term insurance is a lower-cost option with a death benefit for those just wanting to ensure financial support to loved ones after death for a set time period, while whole life insurance provides this death benefit protection along with the flexibility to use the "cash value" portion of the insurance policy for other financial needs such as supplemental retirement income.*

Especially with the 2008 market downturn, you may have contemplated the "what if" of losing your job or becoming unable to work due to disability, or maybe you've experienced this misfortune. With the accompanying financial strain, it's essential to have at least three months of savings to cover living expenses in an easily-accessible, interest-bearing bank or money market account. In addition, disability insurance, often available quite affordably through the workplace, helps protect your paycheck in case of disability.

#2: Banking on a collegiate field of dreams.

I have three young children, so, believe me, I wish it was realistic to count on the luck of getting a college scholarship. But unfortunately, it is not realistic or fair to your child to bank on a free ride for higher education. Your child may receive funding, but it is most likely to be in the form of loans. Planning for college expenses is a daunting process when you look at the cost of education, but consider that every dollar you put away towards college savings while your child is young is one less dollar that you or your child will need to borrow and pay back along with interest charges post-college.

You want your child to have college choices and options, but also not be saddled with thousands of dollars of debt as they start their careers. I encourage my clients with young children to start investing money in a college fund as early as possible.

#3: Counting on an inheritance.
Aging parents may have assets that they fully intend for you to inherit. Yet, counting on this potential windfall to help with big-ticket items such as college costs, retirement or home ownership is usually not a sound financial strategy. There are too many financial variables that parents must manage - medical costs, longevity, health concerns - to bank on inheritance as a financial lifeline. Some options to consider with your retired parents that can protect inheritance are long-term care insurance or retirement income products such as annuities.

Becoming ready for retirement is far too important to leave to destiny. Instead, take control and become the architect of your financial future. You gain confidence through the process of planning and saving, help avoid big mistakes and take the gamble of blind luck completely out of the picture. As a financial advisor, part of my job is to look at a client's situation and pinpoint anything that could undermine their chances of retirement success, including blind luck. I encourage everyone to have a well-defined retirement strategy and embrace a realistic perspective to stack the decks in your favor for a long and secure retirement.

* All guarantees are based on the financial strength and claims paying ability of the issuing insurance company, who is solely responsible for all obligations under its policies.

ING Retirement Coach Jacob Gold is a third generation financial advisor. He is a published author of "Financial Intelligence; Getting Back to Basics after an Economic Meltdown", which was published in August 2009. Gold is a Certified Financial Planner™ practitioner and FINRA Series 7, 24 and 66 securities registered.

Securities and Investment advisory services offered through ING Financial Partners, Member SIPC. Neither ING Financial Partners nor its representatives offer tax advice.

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